On the purchasing power parity puzzle
A puzzle concerning purchasing power parity is examined: Although the immense exchange rate volatility suggests a likely major role of nominal shocks under sticky prices, the observed half-life persistence of the real exchange rate seems excessively high to be rationalized by price stickiness. This...
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| Veröffentlicht in: | Journal of international economics 2000-12, Vol.52 (2), p.321-330 |
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| container_end_page | 330 |
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| container_issue | 2 |
| container_start_page | 321 |
| container_title | Journal of international economics |
| container_volume | 52 |
| creator | Cheung, Yin-Wong Lai, Kon S |
| description | A puzzle concerning purchasing power parity is examined: Although the immense exchange rate volatility suggests a likely major role of nominal shocks under sticky prices, the observed half-life persistence of the real exchange rate seems excessively high to be rationalized by price stickiness. This study analyzes carefully the adjustment dynamics of real exchange rates through impulse response analysis. Half-life estimates are found to have substantial imprecision. Moreover, the dynamic response pattern suggests that the shock response is initially amplified before dissipating and that such non-monotonic dynamics can contribute to more than one-third of the observed persistence of real exchange rates. |
| doi_str_mv | 10.1016/S0022-1996(99)00056-2 |
| format | Article |
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| fulltext | fulltext |
| identifier | ISSN: 0022-1996 |
| ispartof | Journal of international economics, 2000-12, Vol.52 (2), p.321-330 |
| issn | 0022-1996 1873-0353 |
| language | eng |
| recordid | cdi_proquest_journals_225184029 |
| source | RePEc; Elsevier ScienceDirect Journals; Periodicals Index Online |
| subjects | Foreign exchange rates Half-life persistence Non-monotonic mean reversion Purchasing power parity Real exchange rate Shock amplification Studies Volatility |
| title | On the purchasing power parity puzzle |
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